At least one gunman is holding staff and customers hostage at a cafe in the Australian city of Sydney.
The Lindt cafe in the central business district is surrounded by armed police.
Five people have been seen running from the building. It is not clear how many hostages remain inside. Police say they have made contact with the gunman.
PM Tony Abbott described the attack as “terrifying” and said it could be politically motivated. A black Islamic flag has been displayed at the window.
“I can think of almost nothing more distressing, more terrifying than to be caught up in such a situation, and our hearts go out to these people,” he said.
Speaking in Canberra, Mr Abbott added: “Australia is a peaceful, open and generous society – nothing should ever change that and that’s why I would urge all Australians today to go about their business as usual.”
The incident began as people were arriving for work in Martin Place on Monday. Witnesses saw a man with a bag and gun walk into the Lindt chocolate shop and cafe.
Lindt said about 10 employees and 30 customers were thought to be inside at the time. Nearby offices were evacuated and police asked people to remain indoors and away from open windows.
The BBC’s Jon Donnison in Sydney says an enormous police operation is in place, on a scale few Sydney residents will have seen.
About six hours into the siege, three people were seen running from the building housing the cafe. Two more people followed about an hour later. It is not clear whether they escaped or were released.
“We will work with these people to figure out more information. We do not have information to suggest that anyone is harmed at this stage,” said New South Wales Police Deputy Commissioner Catherine Burn after the first three came out.
Police negotiators were now in contact with gunman, she added.
In a statement on Facebook, Lindt said it was “deeply concerned over this serious incident”.
An armed man wearing a backpack and a bandana could be seeing walking around inside the cafe.
Television footage showed at least three people, thought to be employees of the cafe and who were visibly distressed, holding a black sign with the Islamic creed written on it up to the window.
BBC security correspondent Frank Gardner said the flag was similar to but not the same as that used by the Islamic State militant group in the Middle East.
Martin Place is home to the state premier’s office and the headquarters of two of the nation’s largest banks. The state parliament house is also only a few streets away.
Australia – which has sent fighter jets to join the US-led coalition conducting air strikes against islamic State militants in Iraq – raised its terror threat level in September.